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Howard Industries Inc. v. Rae Motor Corp.

June 27, 1961


Author: Major

Before DUFFY, SCHNACKENBERG and MAJOR, Circuit Judges.

MAJOR, Circuit Judge.

This is an appeal from a judgment entered August 26, 1960, in favor of Howard Industries, Inc. (Howard) against Rae Motor Corporation (Rae), for damages in the sum of $99,466.84, together with costs and disbursements in the sum of $1,853.65, or a total of $101,320.49. The Court in its judgment approved the findings and report of a Special Master to whom the matter had been referred for the purpose of ascertaining and determining damages sustained by Howard as the result of a breach of contract by Rae.

As subsequently shown, Rae's liability had been previously determined, and in the instant proceeding the sole issue is whether the approval by the District Court of the Master's findings and report as to the amount of damages is clearly erroneous.

Some statement of facts appears to be in order relative to the relation of the parties, the nature of the case and previous court proceedings culminating in a settlement contract which forms the basis for the instant action. In August 1945, Howard purchased the assets of Electric Motor Corporation (EMC), including a Model 11-A casing, and continued such business. The personnel of EMC continued in the employ of Howard for a few months, then organized Rae and commenced the manufacture and sale of fractional horsepower motors. During the period material to the present case, both Howard and Rae were engaged in the manufacture and sale of fractional horsepower motors which were housed in a casing or shell.

Howard in its purchase from EMC acquired a patent upon its motor. In 1948, Howard commenced an action against Rae for infringement of such patent. The claims did not read on the shell or casing but upon parts of the motor contained therein. Howard in the same action complained that Rae was housing its motors in a shell or casing confusingly similar to that used by Howard and previously by EMC.

On August 15, 1949, Howard and Rae entered into an agreement in which Rae conceded the infringement alleged, and that phase of the litigation was settled and terminated. The agreement also contained a provision by which Rae agreed to refrain from the further use of a casing design confusingly similar in appearance to that employed by Howard.

On August 25, 1954, Howard commenced the instant action against Rae for damages and other relief resulting from the latter's alleged breach of the settlement agreement by the manufacture and sale of its motors in casings confusingly similar in appearance to those manufactured by Howard. By pretrial order the Court directed that the issue of liability be severed and tried first. On this issue only the case was tried and a judgment entered in favor of Howard and against Rae. Howard Industries, Inc. v. Rae Motor Corp., D.C., 165 F.Supp. 646. This Court upon appeal by Rae affirmed, 267 F.2d 430.*fn1

Following the adjudication of Rae's liability, a Special Master was appointed to ascertain damages sustained by Howard. The Master's ascertainment, together with his findings and conclusions, were included in his report to the Court. Such report, over Rae's objections, was approved by the Court and judgment entered from which this appeal comes.

Approaching the issue for decision, we must keep in mind Rules 52(a) and 53(e) (II) of the Federal Rules of Civil Procedure, 28 U.S.C.A., that the findings of a Master must be sustained by the trial court unless clearly erroneous and, when so sustained, as they have been in the instant case, must be accepted by this Court unless we can say that they are clearly erroneous. It also must be kept in mind, as already noted, that Rae's liability, or the fact of damage, has been determined. Moreover, Rae from the time of its organization has been in continuous violation of Howard's rights. Prior to the execution of the settlement agreement, Rae infringed Howard's patent upon its fractional horsepower motor and so admitted in the settlement agreement. For the ten-year period subsequent to the execution of the settlement agreement, Rae in violation of its agreement manufactured and sold its motor in a casing confusingly similar in appearance to that employed by Howard. More specifically, Rae has been adjudicated a wrongdoer and admittedly is liable to Howard in damages. In this connection we think the Master was justified in finding, "On all of the evidence, defendant's breach of the August 15, 1949 contract was neither unconscious nor inadvertent."

Rae's principal argument is that the Master utilized an improper formula in his ascertainment of damages, which resulted in an award based upon guess, uncertainty and speculation. A similar contention has been advanced in many cases and usually rejected where the fact of damage has been firmly established. In such cases a liberal rule has been evolved relative to the ascertainment of damages, a rule designed to protect the victim and prevent a wrongdoer from escaping the consequences of his own conduct.

In Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 264, 66 S. Ct. 574, 580, 90 L. Ed. 652, the Court, after recognizing that an award of damages could not be based on speculation or guesswork, stated:

"But the jury may make a just and reasonable estimate of the damage based on relevant data, and render its verdict accordingly. In such circumstances 'juries are allowed to act on probable and inferential as well as direct and positive proof.' [Citing cases.] Any other rule would enable the wrongdoer to profit by his wrongdoing at the expense of his victim."

In Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 563, 51 S. Ct. 248, 250, 75 L. Ed. 544, the Court, in discussing the difficulty in ...

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